Propane Shows Small Draw; Hub Risks Easing?

The EIA report for the week ending 1/26 was very bearish, showing a small 900,000/bbl draw on propane stocks.

Exports were pegged at just 694,000/bpd, off from last week’s 722,000/bpd and well below last year’s 1.245M/bpd we experienced during the same week.

To that end, we saw a 5.6M/bbl draw this same week one year ago.  Our national inventory levels now stand at 53.1M/bbls vs 62.6M/bbls one year ago, so the year over year deficit continues to narrow.

Back on the report for the week of November 17th, 2017, the year over year deficit was 29.1M/bbls.  Now, that gap is down to 9.6M/bbls.

If you need yet another reminder that our industry is now led and directed by exports and not home heating demand, there’s your sign.

Last winter was one of the warmest on record, yet the inventory stock drawdown from peak to valley was 64.3M/bbls.  This year, since inventories peaked at 82.3M/bbls the week of September 9th, we’ve drawn down just 29.2M/bbls.

Granted, we still have one more month of traditional winter to go, plus a March that should be far colder than what we experienced last year.  And recall, we saw inventories draw down in the month of April, 2017, just the second April draw since 1985.  So we still have a good deal of winter left before us.

However, the risks of serious price blowouts at the hubs may have drastically lessened with this week’s report.  Could we still see some wet barrel premiums in February, as retailers have burned through their contracts and are going hand to mouth, which spills over into hand to mouth buying in the trading sector?  Sure, that can happen.

Still, the rise shouldn’t be severe and I think it’s fairly save to say we have experienced the high for this home heating season as far as propane pricing at Conway and Mt Belvieu,

Off hub, that is a different matter.

If February winds up being as cold as some are projecting, and lasting as long as some are projecting, and if the projected Polar Vortex intrusion into our side of the hemisphere happens, we will experience price spikes off-hub.  For those of you reading this in the Northeast, Ohio Valley and even east of the Chicago area, this means you.

Propane values in the Northeast remain very strong, as finding gas still takes a little work, and folks are still unable to get all they want when they want it.   Pricing in Chicago has come down from the highs we saw 10 or so days ago, but they are still elevated compared to the hubs.  The same can be said of production facilities in the Ohio Valley.

Those of you who purchase a portion of your supply via indexes relative to the trading hubs, this winter should remind you the value in such tools.  When you are picking up gas at day of truck lift plus 0800 to 3000 ish, depending on where you are located, you are saving a lot of money, as spot values (if you can find spot gas) are in the +4000 or more range in most places.

I realize that the past couple of years, those of you who had indexes were paying values higher than spot, due to the excess of supply on the market…but I would wager that this year’s cost savings more than makes up for that in just one season.  Something to remember in the future as you consider how you construct your supply scenarios.

WEATHER:  The models remain volatile.  Some are suggesting a warmer trend in the models, which would be odd for the phase of the MJO we are projected to be in…however, there is a pretty big veto hammer out there, called the Polar Vortex.  The belief is that it will be displaced and make it’s way down to our side of the hemisphere, and that is the coldest air on the planet.  Ignore the lighthearted text in this tweet and focus on the animation:

Here is another model, from BAMWx:

This is out into the Feb 8th through 11th time frame. If this happens, according to Michael Clark from BAM, we could see record breaking cold. If the high pressure (orange) ridge blocks off the retreat of the Polar Vortex, as it is suggesting in the animation at the end (orange areas coming together over the north pole), that is how the coldest air on the plant can stay near to the Ohio Valley, Northern Plains and Northeast and keep temperatures well below normal.

The image in this tweet better illustrations the blocking:


Jon Miller
Marketing Representative for NGL Supply Wholesale in Tulsa Oklahoma. Follow me on twitter @PropaneBuzz

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